TMI Blog2004 (3) TMI 430X X X X Extracts X X X X X X X X Extracts X X X X ..... set aside. Facts 3. The appellants, SEBI, are statutory body constituted under the provisions of the SEBI Act. It can sue and be sued by that name. Being a person aggrieved and affected by the impugned order, has preferred this Appeal. 4. The respondents-Cabot International Capital Corporation (for short referred as CICC ) have its office at Suite 1300, Two Seaport Lane, Boston MA-02210-2019. Cabot India Ltd. (for short CIL ) is a company incorporated under the Companies Act, 1956. CIL was listed in Bombay Stock Exchange on 16th December, 1996, CICC, the foreign collaboration of the CIL, held 51% of paid up capital of the CIL. After the Board Meeting of the CIL dated 24th December, 1996, the Board of Directors approved the recommendations for the Preferential Issue to the members and shareholders of the CIL and accordingly, Extraordinary General Meeting was convened and conducted on January 23, 1997, which was duly notified to the Bombay Stock Exchange on January 2, 1997. 5. By Certificate dated 14th January, 1997, S.R. Batliboi Associates, Chartered Accountants, being the statutory Auditors of the CIL, addressed a certificate to the SEBI and the Reserve Bank of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ril, 1997, filed a Return of Allotment pursuant to section 75(1) of the Companies Act with the Registrar of Companies, Maharashtra, in respect of the above referred issues and allotment of new equity shares. On 16th May, 1997, on application, Bombay Stock Exchange, informed the listing of the aforesaid shares and that the shares were not transferable upto 10th April, 2002. CICC, therefore, pursuant to the aforesaid preferential allotment, held 60% of the issued capital of the CIL. On 2nd June, 1997, the respondents ought to have filed a Report with the SEBI under Regulation 3(4), 3(5) of SEBI Takeover Regulations, 1997, within 21 days of the said allotment. On 28th October, 1998, the SEBI Takeover Regulations, 1997 were amended. 7. DSP Merill Lynch Limited, on 10th November, 1998, on behalf of the CICC, made an application to the SEBI in respect of acquisition of further 14% of the shares and sought an exemption under regulation 3 of the SEBI Takeover Regulations, 1997. 8. Sometime in November, 1998, appellants raised query and pointed out that the SEBI Takeover Regulations, 1997, were applicable and the respondents were under an obligation to file a Report under regulation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Adjudicating Officer dated 31st August, 2003, imposing monetary penalty, preferred an Appeal No. 24 of 2000, under section 15T of the SEBI Act, before the SEBI Appellate Tribunal (SAT), Mumbai, on 22nd October, 2000. This Appeal was duly contested by the appellants through its Adjudicating Officer. The basic grounds raised in the appeal by the respondents were that, there was no deliberate or dishonest conduct or any conscious disregard to the SEBI Takeover Regulations of 1994/1997. It was only a technical or venial flaw from a bona fide belief that the respondents were not liable to act in the manner prescribed under the provisions of SEBI Takeover Regulations, 1997. That alleged breach was without mens rea and no advantage of any kind accrued to the respondents or any loss to the investors. There was no occurrence of default or repetition of the alleged violation by the respondents. They had complied with other laws and regulations. Therefore, no case of penalty was made out and the learned Adjudicating Officer failed to exercise discretion judiciously. The appellants, resisted the above grounds by its Affidavit dated 14th November, 2000. 11. The SAT, after hear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arties, are reproduced as under : 15A Penalty for failure to furnish information, return, etc. If any person, who is required under this Act or any rules or regulations made thereunder: ( a )to furnish any document, return or report to the Board, fails to furnish the same, he shall be liable to a penalty not exceeding one lakh and fifty thousand rupees, for each such failure; ( b )to file any return or furnish any information, books or other documents within the time specified therefore in the regulations, fails to file return or furnish the same within the time specified therefore in the regulation, he shall be liable to a penalty not exceeding five thousand rupees for every day during which such failure continues; ( c )To maintain books of account or records, fails to maintain the same, he shall be liable to a penalty not exceeding ten thousand rupees for every day during which the failure continues. 15J. Factors to be taken into account by the Adjudicating Officer. While adjudging the quantum of penalty under section 15-I, the Adjudicating Officer shall have due regard to the following factors namely : ( a )the amount of disproportionate gain or unfair advant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that, status as is well-known must be read in the text and context thereof , the construction of a statute will depend on the purport and object for which the same had been used. The purpose and object of the Act must be given its full effect and the entire statute must be read as a whole; Contextual reading is a well-known proposition of interpretation of statute. The clauses of a statute should be construed with reference to the context vis-a-vis the other provisions so as to make a consistent enactment of the whole statute relating to the subject matter. A statute is best interpreted when we know why it was enacted. With this knowledge, the statute must be read, first as a whole and then section by section, clause by clause, phrase by phrase and word by word ; No part of a statute and no word of a statute can be construed in isolation ; ****** 29. It is clear from the provisions referred above, that it is an obligation and duty of the acquirer to provide and furnish detailed information with documents through the format of report as prescribed. This format further makes it clear that general information about the acquisition of shares must be submitted to the Board by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b ) of the SEBI Act; in view of the admitted delay and default. (D) The Adjudicating Officer, under section 15-I, read with section 15J of the SEBI Act, was bound to adjudicate on the said breach s and on quantum of penalty, in question. (E) The SEBI Act and the Regulations in question are not penal statutes, but are regulatory and remedial in nature. Proceedings under Chapter VI-A relating to levy of penalties are adjudicatory in nature and are not criminal proceedings. The Adjudicating Officer performs quasi-judicial functions and does not act as a Court, but acts for the purpose of determining the liability for the breach of civil obligations imposed by the SEBI Act and the Regulations. (F) The Adjudicating Officer, after taking into consideration all facts and circumstances and the provisions of section 15J, had imposed a nominal penalty of Rs. 1,50,000 only. Therefore, discretion exercised by the Adjudicating Officer ought not to have been interfered with. The Adjudicating Officer had not imposed any penalty under section 15H( ii ) of the SEBI Act as no offence under that section was made out. (G) The penalties prescribed under the SEBI Act are the liabilities for bre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its consequences are intended to be an effective deterrent. ( g )Once default is established deliberation may be inferred if there is no reasonable explanation forthcoming from the assessee. B. It has been contended therefore, that settled principle of mens rea is a must before proposing a penalty in question. This general principle is not altered or affected by the decision in Director of Enforcement v. MCTM AIR 1996 SC 1100. C. In the case of State of Maharashtra v. Mayer Hans George AIR 1965 SC 722 (3 Judges) the Supreme Court had earlier held that offences under FERA were absolute offences and not conditioned by guilty intent or mens rea . D. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to be judicially exercised and on a consideration of all the relevant circumstances/the entirety of circumstances." 17. Senior Counsel Mr. Janak Dwarkadas for the respondents in other appeal supported the arguments of Senior Counsel Mr. Aspi Chinoy and in addition to that, he referred to the Judgment of this Court in Appeal No. 2 of 2001, dated 5th December, 2003 ( supra ), Nathulal v. State ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Judgment in Appeal No. 2 of 2001 ( supra ). This Judgment was considered in Nathulal s case ( supra ). ( ii ) Hindustan Steel Ltd. v. State of Orissa 1970 1 SCR 753. This authority was referred in support of the submission that "An order imposing penalty for failure to carry out a statutory obligation is the result of a quasi-criminal proceeding and penalty will not ordinarily be imposed unless the party obliged either acted deliberately in defiance of law or was guilty of conduct contumacious or dishonest, or acted in conscious disregard of its obligation. Penalty will not also be imposed merely because it is lawful to do so. Whether penalty should be imposed for failure to perform a statutory obligation is a matter of discretion of the authority to exercise judiciously and on a consideration of all the relevant circumstances. Even if a minimum penalty is prescribed, the authority competent to impose the penalty will be justified in refusing to impose penalty, when there is a technical or venial breach of the provisions of the Act or where the breach flows from a bona fide belief that the offender is not liable to act in the manner prescribed by the statute." This w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : This was a case under the Uttar Pradesh Sales Tax Act. The imposition of a penalty under the said Act was held to be quasi-criminal proceeding and, therefore, it was observed that unless strictly proved, the assessee was not liable for the same. ( ix ) Shiv Dutt Rai Fateh Chand v. Union of India [1983] 3 SCC 529 : This was a case of the penalty under the Central Sales Tax Act 1956 r/w Haryana General Sales Tax Act, 1973. This Judgment elaborates the meaning and purpose of the words "offence" and "penalty". After considering all earlier leading cases on these related principles of "offence" and penalty , the Hon ble Supreme Court, in paragraphs 25 and 31, observed as under : "25. . . . The expression offence is not defined in the Constitution. Article 367 of the Constitution says that unless the context otherwise provides for words which are not defined in the Constitution, the meaning assigned in the General Clauses Act, 1897 may be given. Section 3( 38 ) of the General Clauses Act defines offence as any act or omission made punishable by any law for the time being in force. The marginal note of our article 20 is protection in respect of conviction for offences . T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... udgment, on the contrary, presupposes and recognises, two distinct liabilities, civil, as well as, criminal, and are invokable under the same statute. ( x ) Akbar Badruddin Jiwani v. Collector of Customs 1990 (47) ELT 161 (SC): The concerned provisions were under the Customs Act, 1962. By referring to Hindustan Steel Ltd. s case ( supra ) and other cases, on merit, the imposition of penalty was held to be unwarranted and unjustifiable, as goods, itself, were not within the ambit of Import-Export Policy and/or the Customs Act and as they had acted bona fidely . Therefore, held that the quantum of penalty and fine in lieu of confiscation was extremely harsh, excessive and unreasonable, as found by the Appellate Tribunal. ( xi ) Consolidated Coffee Ltd. v. Agrl. ITO [2001] 1 SCC 278 : This judgment elaborates the meaning of the words interest and penalty in reference to the Agricultural Income-tax. 19. Mr. Dwarkadas relied on Nathulal s case ( supra ). This was a case of offence under Essential Commodities Act, 1955 r/w section 40 of the Indian Penal Code. This was again a case of criminal offence. The principle noted above and in Mayer Hans George s case ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is present in the penalty. In this connection, the terms in which the penalty fails to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in section 271(1)( a ) which requires that mens rea must be proved before penalty can be levied under that provision. . . . ****** 5. Accordingly, we hold that the element of mens rea was not required to be proved in the proceedings taken by the Income-tax Officer under section 271(1)( a ) of the Income-tax Act against the assessee for the assessment years 1965-66 and 1966-67." (p. 1673) 21. Addl. CIT v. I.M. Patel Co. AIR 1992 SC 1762 : This judgment is again in reference to section 271(1)( a ) of the Income-tax Act and concluded as under in paragraph 11 : "11. In view of this, it is no longer open to argument whether any mens rea is required to be established under section 271(1)( a ). As a matter of fact, in the subsequent decision of this Court in CIT v. Kalyan Das Rastogi [1992] 193 ITR 713, squarel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t is done so in adjudicatory proceedings and not by way of fine as a result of prosecution of an accused for commission of an offence in a criminal Court. Therefore, merely because penalty clause exists in section 23(1)(a), the nature of the proceedings under that section is not changed from adjudicatory to criminal prosecution. An order made by an adjudicating authority under the Act is not that of conviction but of determination of the breach of the civil obligation by the offender. 8. It is true the breach of a civil obligation which attracts penalty under section 23(1)( a ) FERA, 1947 and a finding that the delinquent has contravened the provisions of section 10 FERA, 1947 would immediately attract the levy of penalty under section 23, irrespective of the fact whether the contravention was made by the defaulter with any guilty intention or not. Therefore, unlike in a criminal case, where it is essential for the prosecution to establish that the accused had the necessary guilty intention or in other words the requisite mens rea to commit the alleged offence with which he is charged before recording his conviction, the obligation on the part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inal law) is not an essential ingredient for holding a delinquent liable to pay penalty under section 23(1) of FERA, 1947 for contravention of the provisions of section 10 of FERA, 1947 and that penalty is attracted under section 23(1)(a) as soon as contravention of the statutory obligation contemplated by section 10(1)(a) is established. The High Court apparently fell in error in treating the blameworthy conduct under the Act as equivalent to the commission of a criminal offence overlooking the position that the blameworthy conduct in the adjudicatory proceedings is established by proof only of the breach of a civil obligation under the Act, for which the defaulter is obliged to make amends by payment of the penalty imposed under section 23(1)( a ) of the Act irrespective of the fact whether he committed the breach with or without any guilty intention. Our answer to the first question, formulated by us above is, therefore, in the negative." [Emphasis supplied] (pp. 1103-1106) 23. R.S. Joshi v. Ajit Mills Ltd. AIR 1977 SC 2279 : A Constitution Bench of 7 Judges, while dealing with the constitutionality of certain provisions of the Bombay Sales Tax Act, observed thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tial element for imposing penalty for breach of civil obligations or liabilities. (E) There can be two distinct liabilities, civil and criminal, under same act. (F) Even the administrative authority empowered by the Act to adjudicate have to act judicially and follow the principles of natural justice, to the extent applicable. (G) Though looking to the provisions of the statute, the delinquency of the defaulter may itself expose him to the penalty provision yet despite, that in the statute minimum penalty is prescribed, the authority may refuse to impose penalty for justifiable reasons like the default occurred due to bona fide belief that he was not liable to act in the manner prescribed by the statute or there was too technical or venial breach, etc. 26. Chapter VI-A of the SEBI Act deals with the penalties and the adjudication. Section 15-I of the SEBI Act envisage appointment of Adjudicatory Officer for holding an inquiry in the prescribed manner, after giving reasonable opportunity of being heard for the purpose of imposing any penalty. This section read with concerned Rules provide power to the Adjudicating Officer to summon and enforce the attendance of any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential element for imposing penalty under SEBI Act and the Regulations. 29. The penalty imposable under the SEBI Act and the Regulations under sections 15-I and 15J, is deterrent in nature to see that the parties or person concerned complies with the Regulations strictly. The imposition of the penalty under SEBI Act and Regulations is civil in nature and cannot be equated with penal in character as referred and submitted by the respondents and/or observed by the Appellate Authority. It is also clear that the word "penalty" has different colour and shades and facets and that has to be interpreted and imposed on the basis of particular act and policies or scheme. It is also clear that there can be two distinct liabilities under the same Act, i.e., civil and/or criminal. The Authorities or Regulatory Authority have ample power to initiate both proceedings, if case is made out, within the framework of the SEBI Act or the Regulations. 30. The SEBI Act and the Regulations, are intended to regulate the Security Market and the related aspects, the imposition of penalty, in the given, facts and circumstances of the case, cannot be tested on the ground of "no mens rea, no pena ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of the preferential allotment and the relevant details. Therefore, SAT, cannot be said to have erred in the factual background of the case that the respondents never intended or consciously or deliberately avoided to comply with the obligations under the SEBI Act and the Regulations and the non-filing of the Report in question was a technical and a minor defect or breach based on bona fide belief that respondents were not liable or required to submit the said Report in view of the admitted exemption available under the SEBI Act and the Regulations. In the facts and circumstances of the present case the reversal of the order of the Adjudicatory Authority, by the SAT cannot be faulted. 32. However, we are not in agreement with the Appellate Authority in respect of the reasoning given in regard to the necessity of mens rea being essential for imposing the penalty. According to us, mens rea is not essential for imposing civil penalties under the SEBI Act and Regulations. Result 33. We, therefore, dispose of the Appeal by the following order : ( a )The reasoning of the SAT that mens rea or guilty mind of the contravenor is required to be alleged and proved by t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
